Portfolio Margin

AAA

DEFINITION of 'Portfolio Margin'

The modern composite-margin requirements that must be maintained in a derivatives account containing options and/or futures contracts. Portfolio margin accounting requires a margin position that is equal to the remaining liability that exists after all offsetting positions have been netted against each other.

For example, if a position in the portfolio is netting a positive return, then it could offset the liability of a losing position in the same portfolio. This would reduce the overall margin requirement that is necessary for holding a losing derivatives position.

INVESTOPEDIA EXPLAINS 'Portfolio Margin'

Portfolio margin requirements have only been recently instituted in the options market, although futures traders have enjoyed this system since 1988. This revised system of derivative margin accounting has freed up millions of dollars in capital for options investors that previously was required for margin deposits under the old strategy-based margin requirements that were instituted in the 1970s.

RELATED TERMS
  1. Asset Management

    1. The management of a client's investments by a financial services ...
  2. Initial Margin

    The percentage of the purchase price of securities (that can ...
  3. Futures

    A financial contract obligating the buyer to purchase an asset ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  6. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
Related Articles
  1. Forex Leverage: A Double-Edged Sword
    Forex Education

    Forex Leverage: A Double-Edged Sword

  2. How does margin trading in the forex ...
    Forex

    How does margin trading in the forex ...

  3. Spreading The Word About Portfolio Margin
    Options & Futures

    Spreading The Word About Portfolio Margin

  4. What is a margin account?
    Trading Strategies

    What is a margin account?

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center